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Teetering on the brink of the new Depression
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nigelswift
8112 posts

Edited Sep 20, 2008, 09:25
There's still a bombshell to go off
Sep 20, 2008, 09:15
I think there's a huge problem that the plan to buy up bad debts hasn't and can't yet evaluate.

Injudicious lending has two elements - giving money to people who are at high risk of not paying it back (and the degree to which that has happened can now be evaluated) and giving money against dodgy and over-valued security - and the degree to which that has happened can't be known until you come to attempt to sell the security.

At present, you might think a $200,000 loan against a security originally valued at $200,000 that has subsequently probably reduced in line with housing statistics to a probable $150,000 is $50,000 short. But this pre-supposes the original valuation was correct. In truth, dodgy lending includes major pressure on professional valuers and accountants to be over-optimistic on the value. This ranges from "optimism" to outright fraud. (It works like this - all lending institutions have "panels" of valuers. If a valuer provides a less-than-adequately high valuation guess how many more valuation instructions he gets sent? This applies right across the board and is universally known in the industry yet can never be proved by an outside agency. Panel valuers are dropped merely because of "spelling mistakes" or whatever.

As someone that was employed picking through and identifying thousands of dodgy or fraudulent valuations after the last bubble burst I fear that this will be an enormous factor. And right now, the bail out is being calculated purely on the basis of the supplied valuations, with no-one having the faintest idea of how overstated they might be. The American taxpayer is buying a pig in a poke and might have to shell out another huge sum in a year or two.
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Teetering on the brink of the new Depression (handofdave)		 Replies:
Re: There's still a bombshell to go off (stray)
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